A Guide to a Group Scheme Windup by Thomond AM

A Guide to a Group Scheme Windup

Group Scheme Windup

01.01

Contents

02.01

Introduction

03.01

Process

04.01

Winding up a scheme

05.01

Information required by the Pension Board

06.01

Transfer options available

07.01

The advantages & disadvantages of each option

08.01

The next step

09.01

About Us

Thomond Asset Management

Group Scheme Windup

02.01

Introduction

Getting the right financial advice from the right place.

It’s easy to choose a savings plan, a pension, an investment product or an insurance policy. It’s almost too easy, in fact. Just fill out the forms, sign your name, hand over the money without another thought and it’s done - you’re away. It’s so easy. Which is precisely why you need to stop and think hard about choosing any financial product, especially a pension or investment plan. Even someone working in the financial industry will take plenty of time to weigh up their options before choosing the one that’s right for them, and they know what to look for when they start out. Savings plans, pensions and investments come in all shapes and sizes, offering a wide variety of terms, risk levels, charges and potential returns. There are literally thousands of financial products and probably hundreds of different suppliers to choose from. Good products and not so good products, good suppliers and not so good suppliers. You even need to choose the right time: what might have made a good investment six months ago won’t necessarily be the right investment now, and vice versa. If you’re the type of person who enjoys getting all your facts together – researching the market, calling around to the different financial houses, understanding often complicated rules and regulations, as well as developing a keen insight and understanding of the workings of the savings, pensions and investment markets – then maybe, just maybe, you’re the right person to choose the investment or pension plan for you. What if there were people who would do all the hard work for you? Who would sit down with you and work out what your financial needs are. Who would use their in-depth knowledge of the market to draw up a list of suitable products. Who would know which financial company to turn to for the right savings or pension plan, the right investment fund. Who would guide you through the paperwork, help you weigh up the potential risks and rewards, and ensure that no matter what decision you make, at least you’d be making a well-informed decision.

Thomond Asset Management

Group Scheme Windup

03.01

Introduction Cont.

The good news is that Thomond Asset Management are such people. We are independent financial advisers, and it’s our job to do all the financial legwork for you and give you professional, impartial, financial advice. It’s what we’ve trained and studied for many years to do, which is why we can do it very well indeed. A good professional advisor will certainly save you time. That’s because as soon as we start talking to you, we’ll know more or less what plans and product areas are and are not right for you. We’ll also know straight away where to look for the right products. Plus, we’ll probably already have the brochures and other material to hand so we can talk you through some of your options there and then. We’ll also answer many of the questions that arise as you go through the process of weighing up your options, such as explaining the charges, the levels of risk, the return you should expect to get and so on. What you may not realise, however, is that using an independent financial adviser can also save you money, often quite a lot of money. That’s because we are duty bound to give you what’s called ‘best advice’: the best product at the best price at the best time, to the best of our professional ability. This can save you a lot of money in terms of charges and fees and even tax. Of course, by helping you choose a good product we can also be instrumental in maximising the return you get from your money – advice that’s literally worth its weight in gold. Welcome to Thomond Asset Management... Sincerely,

Neal Kelly – Director

Thomond Asset Management

Group Scheme Windup

03.01

Process

A corporate pension scheme restructure / wind up involves transferring the value of a pension scheme (all or some of the scheme members benefits), from one type of pension arrangement to another.

Restructures and wind ups are currently high on the agenda for many trustees of Group Occupational Pension Schemes (Defined Benefit or Defined Contribution). While scheme restructures are believed to be complex and time consuming, much of this perception is down to the paperwork and administration involved. With this is mind, you can be assured that Thomond Asset Management has a strong, tried and tested, offering in the corporate pension market which will help to ensure a seamless process.

In this report we will outline the following: —— ——

he steps involved in winding up a scheme. T The transfer options available to a scheme.

Thomond Asset Management

Group Scheme Windup

04.01

Winding up a scheme

Where an employer decides to wind up an Occupational Pension Scheme the following steps must be completed: Decision to wind up The trust deed and rules of a pension scheme will usually set down the various circumstances under which a scheme may be wound up. The trustees of a scheme will be responsible for any winding up in accordance with the rules of the scheme and the Pensions Act. At a meeting of the trustees of the scheme, a special resolution should be recorded in the minutes of the meeting. Trustees Duties After the special resolution has been passed by the trustees, the procedure to wind-up the pension scheme is as follows: ——

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he trustees must notify the Pensions T Board, all members and the authorised trade unions of the decision to wind up the scheme as soon as possible, but in any event not later than three months after the decision has been made. They should also inform the Revenue Commissioners of the impending wind up of the scheme. The trustees should inform the Registered Administrator of the decision to wind up. The trustees must ensure that all outstanding contributions to the scheme are paid into the scheme and must then proceed to apply the assets of the scheme in discharging its liabilities without undue delay.

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I n the case of Defined Benefit Schemes the trustees should seek the advice of the scheme actuary and, in particular, ask him/ her to establish whether the scheme has sufficient assets to meet its liabilities and to advise whether the investment profile of the fund should be altered in advance of the wind up. The trustees should arrange to have the value of each member’s benefits calculated for transfer to a PRSA, a Buy-out Bond or a new Occupational Scheme. As soon as practicable after the transfer values have been calculated, the trustees should let the scheme members know their options with regard to transferring their transfer values to a PRSA, a Buy-out Bond or a new scheme. With regard to transfers from Defined Benefit Schemes they must inform the members with regard to how any scheme surplus or deficit has been dealt with, and whether a reduction in benefits has been made due to the scheme being in deficit and the amount of same.

Thomond Asset Management

Group Scheme Windup

05.01

Information required by the Pension Board

Upon making a decision to wind up a scheme, a report must be compiled and a copy forwarded to the Pensions Board – this report must contain the following information:

—— —— —— —— —— ——

ate of winding up D Estimate of realisable value of scheme assets. Estimate of cost of discharging scheme liabilities. Statement of all realisations and disbursements since the winding up Summary progress report. Such other information as the Pensions Board may require.

This report is due to the Board not later than three months after the latest date that the Board should have received notification of the decision to wind up.

Thomond Asset Management

Group Scheme Windup

06.01

The transfer options available

Following the winding up of an Occupational Pension Scheme the value of the member’s retirement fund may be transferred to a PRSA, a Buy-out Bond, or a new Occupational Scheme. ——

Transfer to a PRSA

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AVC Benefits The value of any Additional Voluntary Contributions (AVCs) can be transferred to a PRSA without any conditions.

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ain Scheme Benefits M When a scheme is being wound up, certain requirements must be satisfied before the fund value relating to the scheme benefits can be transferred to a PRSA.

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I f the scheme member has more than 15 years service as a member of the scheme†, then a transfer of the value relating to the main scheme benefits is not permitted to a PRSA.

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I f the scheme member has 15 years’ service or less as a member of the scheme and the scheme is wound up, the transfer to a PRSA is permitted, without the need for a Certificate of Benefit Comparison.

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ransfer to a Buy-out Bond T (Personal Retirement Bond) Under a Buy-out Bond the contract is owned by the former scheme member and is no longer held in trust by the scheme trustees. The fund value is subject to the rules of the scheme from which they came, and the legislation governing Occupational Pensions. Therefore, the tax-free cash payable will be based on salary and service at the date of transfer, and an annuity must be purchased with the remaining accumulated capital. If a former employee was a 5% Director they may alternatively take 25% of their fund as tax-free and the remaining accumulated capital may be invested in an ARF/AMRF or used to purchase an annuity. Subject to Revenue limits, the value of any Additional Voluntary Contributions may be taken as tax-free cash, used to purchase an annuity or invested in an ARF/AMRF.

† Note: Active scheme membership excludes periods of deferred service. Following the transfer to a PRSA the value of the former scheme member’s pension fund is now owned by the individual and is no longer held in trust by the scheme trustees. The benefits become payable at retirement in accordance with the legislation governing PRSAs. The tax-free cash will be 25% of the fund, and the individual will be allowed to buy an annuity with the balance or, subject to certain requirements, keep the balance invested in the PRSA, invest the balance in an Approved Retirement Fund (ARF), take the balance as taxable cash, or use the balance in a combination of these options.

Thomond Asset Management

Group Scheme Windup

06.02 ——

Transfer Options cont.

ransfer to a New Occupational Pension T Scheme With this option, if the restructure of a scheme is to a Defined Contribution Scheme the individual pension fund values are transferred to the accounts of the individual scheme members. If the scheme has been wound up and the individual employee has moved to a new employment and joined their new employer’s Occupational Pension Scheme, the value of their pension fund may be transferred to the new employers scheme.

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Transfer Payments Without the Members Consent Where the scheme is wound up: The trustees must give the members at least 30 days notice before the proposed transfer, and they must subsequently inform the member the PRSA or Buy-out Bond has been purchased on their behalf. There must be no outstanding request from the member for a transfer payment to be made to another scheme or a PRSA or for the purchase of a policy or contract of the member’s choice at the time the transfer is made.

Thomond Asset Management

Group Scheme Windup

07.01

Advantages & Disadvantages

The Advantages & Disadvantages of each option – PRSA

Transfer to a PRSA It is not always straightforward to transfer the proceeds of an Occupational Pension to a PRSA as the pensions legislation has restricted the eligibility for such a transfer. In general, it is easy to transfer to a PRSA in the following circumstances:

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Disadvantages of a transfer to a PRSA ——

Where scheme service is less than 15 years AND Where the transfer value is less than €10,000 AND Where the scheme rules allow it. Similarly if a scheme is being fully wound up it is permissible, (assuming the scheme rules allow it) to transfer the full value even if greater than €10,000 to a PRSA if the members scheme service is less than 15 years.

members fund on transfer. In other words, a 100% allocation must be attained on a transfer. The full value of the PRSA is payable income tax free on death before retirement.

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I f the scheme is a Defined Benefit and the scheme is not being wound up, then valuable guarantees could be forfeited by accepting a transfer value. It may be possible to obtain the entire fund or most of it tax free under occupational pension scheme rules, whereas with a PRSA the maximum tax free cash is restricted to 25% of the accumulated fund.

Advantages of a transfer to a PRSA —— —— —— —— ——

More flexible retirement options (not confined to purchasing an annuity) Control over investment funds and timing of benefits. A regulated product. Superior reporting requirements. No charge can be made against the

Thomond Asset Management

Group Scheme Windup

07.02

Advantages & Disadvantages Cont.

The Advantages & Disadvantages of each option – Buy Out Bonds

Advantages of a transfer to a Buy Out Bond ——

—— —— ——

he pension benefit comes out of trust and T becomes a contract between the member and the Financial Institution. It removes the trustees from the equation altogether. The member has discretion over what funds he/she invests the transfer value in. The member has discretion over the timing of benefits subject to Revenue rules. In the event of death before retirement the value is paid free of income tax to the estate.

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Finance Act. (ARF/AMRF and drawdown) It is not possible to transfer the proceeds to a PRSA in the future under the current regulations.

Disadvantages of a transfer to a Buy Out Bond ——

he trustees have no responsibility for the T Buy Out Bond.

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he Buy Out Bond does not give the member T the new retirement options under the 1999

Thomond Asset Management

Group Scheme Windup

08.01

The Next Step

As discussed you are entitled to a transfer payment equal to the actuarial value of your deferred benefits. This transfer payment can be made to another Approved Occupational Pension Scheme or to an approved insurance contract i.e. a Buy Out Bond or PRSA. Under the Disclosure of Information Regulations, you are entitled to an estimate on leaving service of this transfer payment. This can be provided on request.

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New Employers Occupational Pension Scheme Should you decide to transfer your benefit to your new employers pension scheme, you will require the following information to process the transfer of payment. —— The formal title of the scheme to which the transfer value is to be paid. —— Confirmation that the new scheme is an Exempt Approved Scheme under Part 30,

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Chapter 1 of the Taxes and Consolidations Act 1997. The Revenue Approval Number of the receiving scheme. Confirmation from the new trustees that you are a member of their scheme. Confirmation that the new scheme is willing and able to receive a transfer value Confirmation that the new scheme is registered with the Pensions Board, together with a note of the Pensions Board reference number. Completion of an approved Transfer Agreement Form.

Thomond Asset Management

Group Scheme Windup

08.02

The Next Step Cont.

Typically you will need to contact the Human Resources Department of your new employer to arrange for this information to be obtained. This information should be provided by the trustees/ administrator of your new scheme.

The accumulated value of your Additional Voluntary Contributions (AVCs) will also be transferred to the approved contract on your behalf.

Approved PRSA or Buy Out Bond Should you decide to transfer your benefit to an approved insurance contract, the trustees of your present scheme will effect the contract in your name by paying the transfer value to the designated insurance company for investment in the selected fund(s). The value on retirement is determined by the investment return achieved on the transfer value during the period to normal retirement date. It should be noted that the investment return is subject to market fluctuations and therefore cannot be guaranteed.

Thomond Asset Management

Group Scheme Windup

08.01

About Us Thomond Asset Management 82 O’Connell Street Limerick Tel: 061 462024 Fax: 061 312033 Email: info@thomondam.com www.thomondam.com

Regulatory Status with the Central Bank of Ireland FOLK Asset Management Ltd. t/a Thomond Asset Management (“the Firm”) is regulated by the Central Bank of Ireland as an Authorised Advisor under Section 10 of the Investment Intermediaries Act, 1995 and as an insurance intermediary registered under the European Communities (Insurance Mediation) Regulations, 2005. The Central Bank holds registers of regulated firms. You may contact the Central Bank on (01) 224 4000 or alternatively visit their website on www. financialregulator.ie to verify our credentials. Our Investment Firm Intermediary Number is C52926. Disclaimer This document does not constitute an offer and should not be taken as a recommendation from Thomond Asset Management. Advice should always be sought from an appropriately qualified professional. The case studies are not real people and are for illustration purposes only. Whilst great care has been taken in its preparation, this newsletter is of a general nature and should not be relied on in relation to specific issue without taking appropriate financial, insurance or other professional advice. The information contained in this newsletter is based on our understanding of current and intended legislation and Revenue practice as at September 2011.

Warning: -

T he income you get from an investment may go down as well as up. T he value of your investment may go down as well as up. Benefits may be affected by changes in currency exchange rates. P ast performance is not a reliable guide to future performance

Thomond Asset Management